Minutes from the Bank of Mexico‘s June 24 monetary policy meeting released on Thursday showed board members Galia Borja and Gerardo Esquivel breaking with the other three members and voting to leave the benchmark interbank interest rate unchanged at 4.00%.
With the votes of Banxico governor Alejandro Diaz de Leon and members Irene Espinosa and Jonathan Heath, the bank’s five-member board decided by a majority to raise the benchmark interest rate by 25 basis points to 4.25% at the meeting.
The minutes provide some of the first insight into the Borja’s thoughts on the predicament of how to conduct monetary policy in an uncertain environment of high inflation. She is the bank’s newest board member.
Borja said inflation has been subject to significant pressures in recent months, but that most of them seem to be associated with supply-related problems and to changes in consumption patterns as a result of the pandemic, a situation “I believe will hardly be solved through monetary policy.”
“An unpredictable tightening of the monetary policy stance could be interpreted as a change in the cycle rather than a reinforcement of the current policy stance, which would lead to an even greater tightening of local financial conditions, and therefore be counterproductive,” she said.
Borja said the best path forward would be to remain consistent with the bank’s communication and monetary policy approach, which has been characterized for being prudent, cautious, gradual, and predictable.
Most of Banxico’s board underscored that while the shocks affecting inflation are expected to be transitory, “given their variety, magnitude, and the extended time frame in which they have been affecting inflation, they may pose a risk to the price formation process,” said the minutes.
They said the balance of risks for inflation’s anticipated path is tilted to the upside.
Looking ahead, the bank’s monetary policy implementation will depend on the evolution of the factors that have an incidence on inflation, on its foreseen trajectories, and on its expectations, according to the majority of board members.